Tax Treatment of the Monetization of Employees' Earned and Unused Vacation and Sick Leave Credits

September 8, 1992 BIR RULING NO. 257-92 21 (a) 71 029-92 257-92 Uniden Philippines, Inc. Lot 52, FTI Complex Taguig, Metro Manila Attention: Mr . Oscar B . Galuna Asst . Vice President & Corporate Secretary Gentlemen : This refers to your letter dated April 3, 1992 in effect requesting a ruling as to the tax treatment of the monetization of your employees' earned and unused vacation and sick leave credits. LibLex It is represented that your company is also converting the vacation and sick leave credits earned by your employees into cash at the end of the fiscal year for the reason that you have to meet the exigencies and demand of the service; that each entitled employee earns 1.25 days vacation and 1.00 day sick leave credits each month or a total of 27 days vacation and sick leave credits per year. In reply, please be informed that based on the foregoing facts wherein the vacation leave credits of your employees who are unable to go on leave due to the exigencies of the service are monetized, you in effect, have provided a facility or privilege as a means of promoting the health, goodwill and contentment of your employees as contemplated under Section 2 of Revenue Regulations No. 12-86. Such being the case, the monetized unused vacation leave credits of your employees do not constitute additional compensation to them and, are therefore exempt from the withholding tax provided the same shall not exceed ten (10) days during the year. However, considering that monetization of leave credits is the payment of the money value of the accumulated vacation leave credits without actually going on leave of absence, the monetization of leave credits shall not apply to sick leave credits because the employee who avails of the sick leave credits has to go on sick leave. (BIR Ruling No. 103-92). LLpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue